Conspicuously missing from the entire libra story is
how they are actually going to manage the peg. How will they handle the custodian counter-party risk?
What I mean by that is: for libra to actually be a stablecoin, for every libra unit in circulation, FB and their merry band of friends will need to stash a frozen combo of {dollar, euro, yen} somewhere.
That "somewhere" is actually not easy at all to design from a financial infrastructure point of view: any institution (other than central banks) who will actually store that stash will have to:
- be regularly audited by independent auditors
- be risk-free (and there is no such a thing) or the peg will drift.
Worse, these custodians of what is already essentially virtual money are going to be sitting on a huge pile of currency and to guarantee the peg, won't be allowed to do
anything with it.
I give it 6 months before that money is re-invested somewhere through some smart financial engineering.
What I mean by that is: for libra to actually be a stablecoin, for every libra unit in circulation, FB and their merry band of friends will need to stash a frozen combo of {dollar, euro, yen} somewhere.
That "somewhere" is actually not easy at all to design from a financial infrastructure point of view: any institution (other than central banks) who will actually store that stash will have to:
Worse, these custodians of what is already essentially virtual money are going to be sitting on a huge pile of currency and to guarantee the peg, won't be allowed to do anything with it.I give it 6 months before that money is re-invested somewhere through some smart financial engineering.